tv [untitled] September 14, 2012 4:30pm-5:00pm EDT
good afternoon welcome to capital account i'm more in leicester here in washington d.c. these are headlines for friday september fourteenth two thousand and twelve the inflation what inflation await consumer prices in the u.s. rose in august by the most reportedly in three years consumer price index increased point six percent gasoline prices accounted for eighty percent of that rise reportedly that's if you even believe government statistics how does q.e. fit into this equation and is central banks try to reflate asset prices on the flip side we'll hear how moffatt mark barber lays out his case longer term for
a deed lation narry collapse plus yesterday while the fed was overshadowing all other financial news of five hundred billion dollars spending bill easily got through the house of representatives to keep the government's wheels greased until march now the government borrowed nearly thirty five cents for every dollar it spent this year according to the wall street journal mind you lawmakers purportedly hope to address spending after the election but hey what's wrong with deficit spending anyway google if you're from edward harrison founder of credit write downs on that question and the depressed housing prices that the fed is targeting with its policy economic symptom or is that the disease. symptom the fed is trying to treat this symptom with q we instead of the disease of the high debt keeping people from being able to buy homes or get out of them in the first place this gameshow idea came thanks to you our loyal viewer more in viewer feedback
let's get to today's capital account. all right everyone is digesting the fed's q.e. infinity and now its minutes still that came out yesterday and of course the other thing we've heard a lot about ben bernanke you talked about it quite to quite an extent yesterday in the press conference about the fiscal cliff and what fiscal policy makers aren't doing the heavy lifting the fed is doing but can't do alone so so what could fiscal authorities be doing the central planners sitting not at the federal reserve but sitting over in congress or the white house well or what should they not be doing is really the question to joining me to talk about it is edward harrison founder of
credit write downs and nice to have you back on the show advertising. it has been so let's start with the fed because i do want to touch on q.e. because we haven't had a chance to talk about it now you put this into a broader perspective in your thoughts about q.e. in terms of what central banks all over the world are doing to make up for what you say or what fiscal agents are doing first who would you group in to this group of central banks that are that have the printing presses on on overtime to make up for what you say fiscal agents are all of the major industrial central banks you've got the bank of england the swiss national bank the bank of japan and the e.c.b. and the fed all engaging in one form or another of money printing q.e. or financial to the system the swiss national bank has the currency to the to the euro one to one the. limited amounts of reserves in order to keep
that from going above that ok so you have central banks on overdrive is there any kind of broad trend or if not a broad trend what are the key trends what fiscal agents you believe aren't doing that they should be doing that central banks are making up for well before. into the whole fiscal side it's interesting to think about the fact that two years ago we had this whole thing with the finance minister from brazil talking about currency wars the currency wars and yes exactly what's happening happening again that he was talking about he was talking about the fact that all these industrialized countries were printing money they were adding reserves to their systems etc and this was having a negative effect on his economy so we could potentially have that again of course all of these economies are slowing not just in the united states and in europe and so forth but brazil's only got two percent g.d.p.
growth this year so it's a little bit of a different story it is a different story that's interesting because originally when that currency wars speech was famously made by that finance minister that's when brazil's economy was growing very rapidly all of the brics economies were and now we've seen more of a global slowdown where some of those economies that were driving global growth have slowed down a bit so what happens in kind of a currency war two point zero where are those countries trying to fire back against the liquidity that's being put into the system by developed economies what is a round to look like maybe they get into the system as well you know india is slowing down they still have pretty high inflation the last that i saw was seven point seven percent brazil slowing as we were talking about china's slowing all these countries are slowing so maybe they'll do exactly the same thing and to a certain degree they can go with the school more so than the developed economies because they don't have the huge debt burdens that develop right on their head all down and they had austerity programs back in the i.m.f.
day europe is dealing with so they don't have the same debt overhang but with the consequences be greater this time because there is less low hanging fruit it seems there is definitely less ability for us to sort of engineer a reflation response because you know you have higher debt levels. in the public sector you have still high debt levels in the private sector and then you have things that are decelerating but you know they're going to try to do as much as they can they're going to try to you know boost asset prices as much as possible if you can get this housing recovery that sort of incipient stabilizing keep on going for a little bit a few. fewer people are going to be underwater in their mortgages in fact actually over q one in q two to one point three million people with above water on their mortgages which is a huge amount that's what the fed is really trying to do that's why they're
targeting mortgages and these are the kinds of things that they're going to try to do is just treading water we might have two percent growth as a result of that. but obviously if you have the fiscal cliff you could actually go into recession right so you said some doubt this is the most aggressive monetary blitz the world has ever seen so is this going to be the most aggressive display of unintended consequences we've ever seen you know without a doubt i mean if you look at you know just the price earnings ratios on the s. and p. they're still very high yield bonds are at their lowest nominal rates ever in the history of the high yield market you have gold now that is soaring you have oil prices which are incredibly high and that are contributing eighty percent of the inflation that we saw in the last month all these things are the unintended consequences of the quantitative easing that we're seeing and people shifting their portfolios in order to take advantage of the fact that they're getting nothing and
they're getting you know financial repression from the central banks and they need to do something in order to actually see to retire right so do you think that we're going to see commodity prices go up as a result of this latest q.e. we could i would think that that would be the first thing that we would see is as long as demand is still relatively world. for the products that you know in particular and we also have soybean and corn which have seen very high numbers then we're going to see higher prices but the industrial commodities you know like iron ore and so forth that's ruling over because demand in places like china has slowed down a slowdown yeah that's right so what then does printing money because we've talked about propping up asset prices and homes we've talked about unintended consequences we've talked about that money going into commodities what then edward please tell me there's more q. we just printing money have to do with unemployment that's
a good question. for the people who think that the fed is omnipotent it really doesn't have a whole lot to do with it because at the end of the day really what the fed's doing is they're swapping one government liability for another they're saying look you know there are all these government liabilities. and we're going to take them up and then we're going to you know make some more in terms of reserves so we got rid of these government bonds and now we're putting reserves and this version that they're doing instead of saying well you know that's not good enough so what we'll do is we'll try to you know target this particular market you know in an artificial bill to the mortgage market by creating government money and then swapping those assets for the mortgage assets so that we can make the this particular market inflated because that's something that we really want to do right and as ben bernanke he said if people have more value in their homes they'll feel
richer they'll go out and spend money maybe this will create growth maybe this will create jobs maybe but what if the problems with employment are structural and not cyclical will take a little step back even though isn't it true that we already have a record low mortgage. so why are you. having even lower yields is actually going to make people suddenly have jobs it's not about the interest rate is about something else it's about huge levels of it's about people trying to overcome the lack of aggregate demand because people you know they're trying to save in order to pay down their debt right so how in this situation do you deal with that debt burden you know there are a number of different ways you can deal with that one you could print money and try to boost up asset prices that were but that's what he's doing that's what he's doing that's only going to have a limited effect but then you can also have someone like the government that is the
agent try to get in there and also boost up. demand by actually adding demand and deficit spending ok let let's get into this let's get into this because the other night we got into this discussion you me and our producer on the show dimitri about you said you guys tell me what's wrong with deficit spending and dimitri and i had plenty of reasons that we thought but edward what is not wrong with deficit spending at a time when the u.s. is sixteen trillion dollars in debt will ultimately if you look at your money you you know i'll take out a twenty dollar bill here that you know i need to add words right if you look on and says here this no it's legal tender for all the debts public and private so you go down to the bureau of printing and engraving and you say you know give me my money i want something instead of this piece of paper that you gave they'll just give you a bunch of ones or a bunch of favs or you know maybe even you get
a bunch of jews they're going to give you the same thing back because of the currency ok so are you suggesting that it's worthless you can't get around these are binding that for more paper money based on it's worth you know the full faith and credit of the united states government and its ability to tax you know the. the reason that it's worth something is also because it does you know this is legal tender it's not like i could go up and print up a bunch of harrisons and. put them out there so you're saying that the u.s. government's ability to coworkers is what's backing that twenty dollar bill one hundred percent and so as a result of that they've coerced and you know everyone has to use this money this is the only legal tender and we can tax you and will be able to back the money and give the money actually you know currency because you have to
pay off your tax obligation you can only pay it off if you pay it off in the currency the government has created so the government has no restrictions this is the problem that people don't understand is the government the reason that we try to put all these restrictions on them we we act as if they actually are real is because we understand people really understand the system that the government could just go out and just buy in for night and they could do anything they want to add where the one problem that i have with this is what about if people do use faith in the currency then all bets are off when you say what are they going to do are they going to start you know buying with gold or they're going to start using a rose in the united states so they can start using chinese yuan no it's never going to maybe the for your. dollar we want to transact ingle maybe markets will overall they won't be able to do the legal tender you have to pay off your taxes with the united states currency it's not going to happen all the people who are always talking about the fact that people will lose faith in the currency they fail
to realize that you still have a tax obligation that has to be made in the currency it's a long time this year if you are a year old is that if you can't pay your taxes and it is and it's a different the way it's even dealt with we're going to have to leave it there for today but this discussion we will continue edward harrison thank you so much i'll get that twenty from you during the break just kidding after it airs and founder credit right down. and still ahead while everyone else is using the word inflation to discuss q e three we will talk to mark barber about why he predicts longer term a diva place january collapse that's right after the break but first your closing market numbers.
review an. interview him. as we're talking today about money printing and inflation what would milton friedman or john maynard keynes have to say what with they buy maybe not what the popular notion would suggest keynesianism today is synonymous with money printing or spending i would argue now mark father recently argued in a king world news interview which by the way is a great radio program he made an interesting point about how modern economists have
misrepresented and abuse the work and intentions of people like keynes and friedman people like paul krugman for example or ben bernanke who have strongly associated in selves with these famous economists now earlier i spoke with gloom doom and gloom reports mark father himself all about it take a listen. to people like paul krugman for example or ben bernanke have strongly associated themselves with these famous economist but if keynes or friedman were alive today do you think this they would endorse these modern thinkers policies actually i could tell you keynes was a very intelligent man and actually he also had the flexibility to change some of these views if the arguments presented to him were convincing conditions change or the change some of those and he actually there was a huge debate in the late twenty's between american economy sule maintains that the
inflation was not just an increase in the prices of consumer goods. but that they had at that time also inflation in real estate prices in the late twenties and in installment credit and then inflation in stock prices and after the crash in twenty nine days during the depression keynes himself wrote that if someone had just looked at consumer prices and at commodity prices wholesale prices in the twenty's he would have concluded that there is no inflation but if someone had looked at credit growth and that real estate prices and home prices and the real estate industry in general and stock prices he would have concluded that there was a lot of inflation in the system and so i think if we lived today he would have
he would be very disappointed how he series have been abused because a series were essentially designed to smooth out the business cycle when they made it much worse in the last twenty years by intervening repeatedly into the free market with government institutions like any man freddie mac. with government policies fiscal policies and monetary policies and prospering problems so each crisis was the worse and worse than the previous one and equally. your listeners should actually look at the speech milton friedman gave in nineteen seventy seven he gave it at the university and i think it may have been viscounts in or so but i don't recall it exactly but basically he. spoke about
five great economic myth and basically yes he said that during. depression the federal reserve should have printed more money but later in his presentation he says that of course the money printing is very negative kind of economic policy you know i want to talk a little bit more about the deflationary collapse that you see bigger picture on the horizon at some point because you've talked about war you've talked about biological terrorism all sorts of conditions that could define this period in the near future what through the now how do you see that scenario playing out. well i believe that central banks will continue to print. their money doesn't float on the street and it doesn't create employment quite on the contrary it may be counterproductive there's all kinds of studies that have been published
for one thing is sure having these artificially low interest rates allows the government to have huge deficits and so the government explodes in the road and the government increases its size at the expense of the private sector now in an economy the larger the government is basically the slower economic growth will be because the government is not the productive part of the economy moreover if you pile up dates it depends also what you use the dates for do you use it for capital spending the construction of factories and machinery or do you use it for consumption and consumption is obviously not a sustainable. model in the long run it can last for a long time but not forever so the way i see it is that as the
central banks will continue to print money the average household will be become more and more dissatisfied. i and probably over time as has happened for many households the household sector will become impoverished and then there will be a lot of dissatisfaction and then the politicians will have to find a way to get out of that and usually in that situation when money printing doesn't help any more they will go to war or they'll start the war or they. and then me outside their sovereign states and of course and that then can lead to war and i would say war will break out either major way the whole day or if the market will simply. expire year will disappear how it will be settled i don't know but it will disappear and there will be huge losses among
friends and shaleen secu sions and the players in their early thieves the man on the street you will hardly notice it. mark fabiani next chapter of derivative warfare and just f y i here's part of the one nine hundred seventy seven milton friedman speech that mark father mentioned we wanted to bring you that line because the friedman in that speech said the fed should have done more to prevent contraction during the great depression but he also issued a warning about monetary easing. can you print money at no cost. it's very cheap to turn those pieces of paper but does it get society something for nothing not alone it's simply a different form of taxation. there you go the government may have the ability to do it it doesn't make it right doesn't make it three he went on to say if you print money people have more money to spend if they spend more money on the same amount
of goods prices go up and in effect everyone is paying a tax through inflation i will leave you with that final thought. are let's wrap up with a little loose change i want to chance to interact with our viewers earlier this week we had mark's father on you obviously some today yesterday he was on talking about q.e. and about gold and one of our viewers just took it straight on said lauren better own some gold hey r t how about answering this question on air you can block my name does lauren own any gold this is from f one eight seven guess that's why we
had block his name on full disclosure i do not own gold i can't afford to hold as expensive i don't make very much money. relative to how expensive it is which works out because then i avoid a conflict of interest considering that we do cover gold so much i'm constantly it to bring people about it full disclosure though we should tell you that dimitri our producer does own gold he has and two thousand and five he was smart he got hit with curly and in regard to the mark barber interview another viewer said lauren is the only one who can interview this very intelligent man properly in comparison to all the mainstream dumbos his word not mine and he likes and respects her questions more too so joseph and bro you are officially my favorite person in the world today . q. earlier this week we played some of these sound from a great interview with david stockman reagan's former budget director where he just laid into the fed here's a little bit of
a taste. he was the only one that was ready to bolt in the senate is the heart of the problem we have destroyed the capital markets the money markets interest rates mean nothing everything is treating all. he was talking about ron paul being the only one that was right about the fed when they were talking about politicians in the elections and one of our viewers found this wiki attributed quote to david stockman saying i invest in anything that bernanke he can't destroy including gold canned beans bottled water and flashlight batteries that was bam bam twelve who found out on wiki not exactly the most trustworthy source but we had david stockman on the show next week we are supposed to so i will just go ahead and ask him in person about how he bets on the burning keep put and someone really loved dimitri talking about whether. or policymakers were treating the symptom an economic symptom or the disease viewers love that we got a lot of responses and one said dimitri you want to create
a new game show with this social educational bent called symptom or disease magic two hands you're one of our loyal viewers because i know we read your comments before and now you're creating segments because i think we're going to have to try this out and do a little game show with some of our guests because it is such a perfect perfect thing to do and just real quickly earlier this week we had a segment on a doctor who's bringing the market to health care really taken on the whole insurance and cost paradigm and one of our viewers said i've learned more about how the health care industry operates in the last half hour than i have in my entire life steve two three two three z. x. thank you i'm glad you learned something we did too is a really interesting segment a really different way to look at the economic principles applied to medicine and that's it for our show today they. you so much for watching be sure to come back next week because as i contend with david stockman got a lot of good guests and in the meantime you can follow me on twitter at lauren lyster and give us feedback on the show any you missed or subscribe at youtube dot
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free. three stooges free. download free broadcast quality video for your media projects a free media oh god r.t. dot com. you know how sometimes you see a story and it seems so you think you understand it and then you glimpse something else you hear or see some other part of it and realize everything you thought you knew you don't know i'm tom hardy welcome to the big picture.